Ethanol – Revolt Against King Corn Has Just Begun

The corn lobby defeated bipartisanefforts this year to remove two of ethanol’s political privileges, the 45¢ per gallon blender’s tax credit and the 54¢ per gallon protective tariff against imported Brazilian sugarcane ethanol.

However, roughly 60 organizations from across the political spectrum joined forces to challenge King Corn, and many are resolved to work together to carry on the fight next year.

Perhaps even more important, ethanol-subsidy foes now occupy the moral high ground. The Washington Post, the New York Times, and the Chicago Tribune, left-leaning stalwarts that usually applaud every green fad and cheer every government intervention in the economy, all say it’s time to end to the blender’s credit. Politically-correct Time Magazine calls federal ethanol policy “the clean energy scam.” Even Al Gore acknowledges that his previous support for ethanol subsidies was a “mistake” undertaken to win the support of corn farmers in the Iowa presidential primary.

Aside from corn farmers, ethanol distillers, and their mouthpieces in Congress, hardly any informed person disputes that corn ethanol does squat for U.S. energy security, inflates grain prices, shortchanges consumers at the pump, contributes to air and water pollution, and (on a life-cycle basis) emits more carbon dioxide than the gasoline it replaces.

Among the “progressive” organs to turn a skeptical eye on ethanol is National Public Radio, which this week ran a three-part series on the topic.

In the first segment, Prof. David Swenson at Iowa State University, in the heart of corn country, takes issue with industry ads claiming that ethanol has created “nearly 400,000 jobs.” The actual figure, Swenson says, is “in the neighborhood of 30,000-35,000 jobs.”

But doesn’t ethanol help insulate us from the rollercoaster of global crude oil prices by providing an alternative to gasoline?

Quite the reverse, explains Iowa State University Prof. Bruce Babcock in NPR’s second segment. Precisely because ethanol competes with gasoline, “we’ve now hitched the price of corn, inextricably linked the price of corn to the price of crude oil.” And because corn competes for land and customers with other grains, is widely used in food processing, and is a key livestock feed, the price of food is now linked to the price of crude oil. NPR comments: “With corn prices more closely tied to oil prices, when the price of gas goes up, it raises the demand for ethanol. That means consumers will feel it in two places: at the pump and on the dinner table.”

EPA recently approved the sale of E-15 — motor fuel blended with 15% ethanol, which contains 50% more ethanol than the E-10 misleadingly sold at service stations as “regular gasoline.” Growth Energy, a leading ethanol industry group, claims that consumers should be happy to fill their tanks with E-15 because that’s what NASCAR drivers now use. An obvious non-sequiter. A diet that’s good for a professional football player or a professional marathon runner is not necessarily good for a couch potato or even a weekend warrior.

To cut through the hype, NPR’s third segment interviews Dan Edmunds, director of vehicle testing at the auto research Website Edmunds.Com. Edmunds drove a flexible-fueled vehicle from San Diego to Las Vegas and back, first using E-10 and then using E-85 (motor fuel blended with 85% ethanol). He made the round trip with 36.5 gallons of gasoline. On E-85 it took 50 gallons — 37% more fuel to go the same distance.

Public policy change typically requires odd-couple (“Baptist-Bootlegger“) alliances — a convergence of ideologically-motivated activists with bottom line-motivated business interests. That’s why demoting or even dethroning King Corn is now a real possibility. Ethanol’s fall from ideological grace among green activists and the mainstream media occurs at a time when powerful industry groups are either in open revolt against the King or are resisting his demands for additional privileges.

Rebels include the beef, poultry, hog, and dairy industries. They advocate repeal of the ethanol tariff and tax credit because those policies raise the price of corn, their basic feedstock, making them less competitive.

Earlier this week, several major U.S. oil refiners — direct beneficiaries of the blender’s credit, BTW — said they would not distribute E-15 despite EPA’s authorization to sell the fuel. As reported in the Wall Street Journal, Valero Energy Corp., Marathon Oil Corp., and Tesoro Corp. contend that E-15 could harm older car and truck engines and void their warranties.

The Journal also noted that the Alliance of Automobile Manufacturers, which represents General Motors, Ford, Toyota, and other auto companies “filed a petition with a U.S. appellate court in Washington on Monday challenging the EPA’s approval for the sale of gasoline containing 15% ethanol.”

The lame duck Congress renewed the ethanol tariff and tax credit for another year. But if Congress had debated the issue in 2009, the extension likely would have been for five years. That reflects the growing strength of the bipartisan, left-right, industry-activist anti-subsidy coalition.

A factor that should strengthen rebel forces — the incoming Congress will include many more fiscal conservatives than the one that just adjourned.